INCOME TAX PLANNING

INDIA

PRIYANKA SACHIN ROHOKALE

HPGD\JL20\2534
SPECIALIZATION- FINANCE

WELINGKAR INSTITUTE OF MANAGEMENT

DEVELOPMENT & RESEARCH

YEAR OF SUBMISSION JUN 2022

 ACKNOWLEDGEMENT

With immence pleasure I would like to present this

report on ‘Income Tax Planning in India’
I would like to thank Welingkar Institute of
Management for providing me the opportunity to
present this project
Acknowledgement are due to my parents, family
members ,friends and all those people who have
helped me directly or indirectly in the successful
completion of the project.

Priyanka Rohokale
 UNDERTAKING BY CANDIDATE

I declare that project work entitled “Income

tax planning in India” is my own work
conducted as part of my syllabus. I further
declare that project work presented has been
prepared personally by me and it is not
sourced from any outside agency. I
understand that, any such malpractice will
have very serious consequence and my
admission to the program will be cancelled
without any refund of fees. I am also aware
that, I may face legal action, if I follow such
malpractice.

Signature of Candidate
 INDEX
1)Introduction of Tax
planning………………………………….4
2)Meaning of Tax
Planning……………………………………….6
3)Advantages of Tax
…………………………………………….8-10
4)Types of tax
planning……………………………………….11-12
5)Income tax
calculation……………………………………..14-19
6)Other types of income
tax…….............................20-22
7)Feature of tax
………………………………………………….25-27
8)Tax planning example………………………………………
28-30
9)Tax planning benefits
……………………………………..31-34
10) Tax planning &
managerial…………………………..36-39
11) Tax planning
salary……………………………………….41-43
12) Tax planning capital
gains…………………………….44-48
13) Tax planning
calculate………………………………….49-52
14) Tax
equation………………………………………………..53-55
15) Tax planning
suggestion……………………………….56-59
16) Conclusion……………………………………………..60
17) Bibligraphy……………………………………………61
Introduction of tax planning

Income tax Act, 1961 governs the taxation of

incomes generated within India and of incomes
generated by Indians overseas. This study aims at
presenting a lucid yet simple understanding of
taxation structure of an individual income in India
for the assessment year 2004-15.
Income tax Act, 1961 is the guiding baseline for all
the content in this report and the tax saving tips
provided herein are a result of analysis of options
available in current market. Every individual
should know that tax planning in order to avail all
the incentives provided by the Government of
India under different statures is legal.
Tax Planning

Tax planning is a legal way of reducing your tax

liabilities in a year. It will help you to utilize the tax
exemption, deduction and benefits in the best
possible way for minimising your tax burden.
However it should be done in a legal manner.

What is Tax Planning?

In India there are a number of tax saving options

for all taxpayers. These options allow for a wide
range of exemptions and deduction that help in
limiting the overall tax liabilities. The deductions
are available from Section 80C through to 80U and
can be claimed by eligible taxpayers. These
deductions are made against the quantum of tax
liabilities
Objective of Tax Planning
Tax planning is a focal part of financial planning. It
ensures savings on taxes while simultaneously
conforming to the legal obligation and
requirements of the income tax Act 1961. The
primary concept of tax planning is to save money
and mitigate one tax burden. However, this is not
its sole objective.

Advantages of Tax Planning

1. To minimise litigation:
To Litigation is to resolve tax dispute with
local, federal, state, or foreign tax authorities.
There is often friction between tax collectors
and taxpayers as the former attempts to
extract the maximum amount possible while
the latter desires to keep their tax liability to a
minimum. Minimising litigation saves the
taxpayer from legal liabilities.
2. To reduce tax liabilities:
Every taxpayer wishes to reduce their tax
burden and save money for their future. You
can reduce your payable tax by arranging your
investment within the various benefits offered
 under the income tax Act 1961. The act offers
many tax planning investment schemes that
can significantly reduce your tax liability.

3. To ensure economic stability:

Taxpayer money is devoted to the betterment
of the country. Effective tax planning and
management provide a healthy inflow of
white money that result in the sound progress
of the economy. This benefits both the
citizens and the economy.

4. To leverage productivity:
One of the core tax planning objectives is
channelizing funds from taxable sources to
different income-generating plans. This ensure
optimal utilisation of funds for productive
causes.
Types of Tax Planning
Most people merely perceive tax planning as a
process that helps them reduce their tax liabilities.
However, it is also about investing in the right
securities at the right time to achieve your
financial goals.
1. Short-range tax planning
Under this method, tax planning is thought of
and executed at the fiscal year. Investors
resort to this planning in an attempt to search
for ways to limit their tax liabilities legally
when the financial year comes to an end. This
method does not partake long-term
commitment. However, it can still promote
substantial tax saving.
2. Long-term tax planning
This plan is chalked out at the beginning of the
fiscal and the taxpayer follows this plan
throughout the year. Unlike short-range tax
planning, you might not be offered with
immediate tax benefits but it can prove useful
in the long run.
3. Permissive tax planning
This method involves planning under various
provisions of the Indian follows laws. Tax
planning in India offers several provisions such
asdeduction, exemptions, contributions, and
incentives. For instance, Section 80C of the
Income Tax Act 1961, offers several types of
deductions on various tax-saving instruments.

4. Purposive tax planning

Purposive tax planning involves using tax
instrument with a specific purpose in mind.
This ensures that you obtain optimal benefits
from your investment. This includes
accurately selecting the appropriate
investment, creating an apt agenda to
replace assets and diversification of
business and income assets based on your
residential status.

How to save taxes?

Taxpayers are provided with several options to
reduce their tax liabilities. Various of the Indian
income tax law offer tax deductions and
exemptions, of which, section 80C is the most
popular tax-saving avenue. For e.g., Deposit in
public provident fund, five year bank deposit,
National savings certificate, investment in ELSS
schemes.
The best and the most optimum way to save taxes
is by laying out a financial plan whenever there is a
revision in your income and sticking to it. Also it is
a good habit to make tax-saving investments at
the beginning of the year rather than making hasty
and often incorrect investment decisions at the
last moment. To do this, it is crucial to be aware of
all the exemptions and deductions available to
you.

Features of Tax Planning

 To reduce tax liabilities
 Legal
 Ethical
 Beneficial to economy
 As per the rules of law
 Reduction of stress
 It can be both short or long term
 Required knowledge of law
Benefits
 Reductions in tax liability
 Helpful in capital formations
 Healthy growth of nation
 Employment generation
 Minimization of litigation
 Reduction in cost
 Other benefits

Limitations
 Need of expert advice
 Time consuming
 Increase in cost
 Continues amendment in tax laws
 Procedural difficulty

Who are the Tax Payers?

Any Indian citizen aged below 60 years is liable to
pay income tax, if their income exceeds Rs2.5
lakhs. If the individual is above 60 years of age and
ears more than Rs2.5 lakhs, he/she will have to
pay taxes to the Government of India.
Additionally, the following entities that generate
income are liable to pay direct taxes
 Hindu Undivided Family(HUF)
 Body of Individuals (BOI)
 Association of persons(AOP)
 Local Authorities
 Corporate firms
 Companies

Types of Taxes in India

As per the income Tax Act, there are 2 types of
taxes in India
Direct Taxes
It is borne and paid directly by the individual on
whom it is imposed such as, wealth tax, income
tax, gift tax, etc. the taxpayer pays this tax directly
to the government without any involvement of
intermediary sources.
Indirect Taxes
If a tax is passed on by the taxpayer to the other
person, it is an indirect tax e.g. sales tax, value
Added Tax (VAT) etc. This type of tax is paid
indirectly to the Income tax department
How is the Income Tax Collected?
There are primarily three ways in which the
Income taxes are collected by the Government:
 Taxes Deducted at sources (TDS)
 Taxes Collected at Sources (TCS)
 Voluntary payment by tax payers into
designated Bank

Online Income Tax Payment

Nowadays, taxpayers can use the facility of e-
payment in order to pay direct taxes online.
However, it is important to keep in mind that the
taxpayer should have a net-banking account with
an authorized bank in order to avail the facility of
online tax payment. For the validation purpose the
taxpayer also need to provide the permanent
account number (PAN) or tax Deduction and
collection number (TAN)

Tax Planning in India

 Save tax under Sec 80 c, sec 80ccc & sec 80ccd
 Save tax under sec 80D.sec80DD& sec 80DDB
  Tax planning through home loan
 Save tax through education loan u/s 80E
 Tax planning of long term capital gains
 Long term capital gains from the sale of equity
shares

Income tax calculation

Tax calculation is done on the annual income of a
person and the annual financial cycle under
income tax law start from 1st April to 31st March of
the next calendar year. The law classifies the years
as Previous year and Assessment year.

The Basics of Income tax Calculation

in India
Income tax in India is filed annually on the basis of
‘Previous Year and Assessment year’
1. Previous Year- According to income tax rules,
‘Previous to income tax rules, ‘Previous year’,
also known as the ‘Financial Year’ begins on 1st
April of the current year and ends on 31st march
 of the next year. It doesn’t matter in which
particular month you have started earning, the
financial year will end on the 31st march and the
new tax year will begin 1st April onward. Hence,
it become necessary to plan your taxes in
advance for each financial year.
2. Assessment year- In simple words, it is the
upcoming fiscal year which comes after the
previous year and one has to assess and file
her/his income tax return.

How Income Tax Works

Most countries employ a progressive income tax
system in which higher-income earners pay a
higher tax rate compared to their lower-income
counterpart. The U.S. imposed the nation first
income tax in 1862 to help finance the civil war.
After the war, the tax was repealed it was
reinstated during the early 20th century.
The Internal Revenue Service collected taxes and
enforce tax law in the United States. The IRS
employs a complex of rules and regulations
regarding reportable and taxable income,
deduction, credit, et al. the agency collects taxes
on all forms of income, such as wages, salaries,
commission, investment, and business earnings.

Types of Income Tax

1. Individual Income Tax – Individual income
tax is also referred to as personal income tax.
This type of income tax is levied on an
individual wages, salaries, and other types of
income. This tax is usually a tax the state
impose. Because of exemptions, deduction,
and credit, most individuals do not pay taxes
on all of their income.

2. Business Income Taxes – Business

also pay income taxes on their earning the IRS
taxes income from corporation, partnerships,
self –employed contractors and small
business. Depending on the business
structure, either the corporation, its owner, or
shareholder report their business income and
then deduct their operating and capital
expenses. Generally, the difference between
their business income and their operating and
 capital expenses is considered their taxable
business income.

3. State and Local Income Tax – Most

U.S states also levy personal income taxes. But
there are eight states that don’t impose
personal income taxes on residents. Alaska,
Florida, Nevada, South Dakota, Texas,
Tennessee, Washington, and Wyoming.
Tennessee repealed its hall tax on Jan. 1,2021
which taxed dividends and interest.

What are the different taxable Heads of

income?
Income taxes are levied depending on the
sources of income. Following are the five
main income heads from which taxes are
deducted.
Income from salaries- Taxable income that
all employees receive from their employers is
categorized under this head. As per section
192 of the Income Tax act, the employer will
withhold taxes if the employees do not come
within the taxable bracket. All about tax
deductions and the net paid income are
detailed inform 16 that must be provided by
the employer to the employee.

Income Form Capital Gains – Capital gains

taxation applies to earning from the sale of
capital assets held by the tax assesse. Capital
assets refer to the properties such as
building, land, bonds, equities, debentures,
jewelleries. Taxes are levied on the income of
the assesse when such properties are sold.

Income From House Property – Income tax

is levied on house property, if the house is
give out on rent by the owner. However,
under this head, the property cannot be used
for business or professional purpose.
Income From Business – As per section 30
to 43D of the Income Tax act the profits
earned from businesses or by providing
professional services are considered taxable
as per applicable rates. This income head is
also know as profits and gains of business or
profession.

Income From Other Sources – Income from

any sources other than the four listed above is
categorized under this head. Some specific
income coming under this head is listed
below.
 Lottery/horse race winnings
 Income from dividends
 Pension received after the pensioners

Feature of Tax Planning

 Reduction in tax liability – one of the most
important features of tax planning is to
reduce tax liability. Every individual has
done his financial plan so he can reduce
his tax amount and can save for his future
plans.
 Advance planning – One has to arrange
his tax plans at the beginning of the
financial year because no one can plan to
reduce his tax liability day before filing an
income tax return.
 Investment in the right direction – with
the help of tax planning one can invest his
money in the right direction by choosing
the right policy. Investment in any assets
or policy will not help in saving money
from taxes, for this right investment
should be done.

 Dynamic in nature – Tax planning has to

be done every year because of the new
implementation of policies introduced by
the government. One has to modify his
tax plans at the beginning of every
financial year.

Areas of Tax Planning

For implementing tax planning one can
use different ways to save his tax money.
There are some areas where we plan to
reduce our tax liability-

1. Reducing Taxable Income – one can

use government schemes and
program to reduce his taxable
income, it will directly reduce his tax
liability. One should try to minimize
his taxable income to reduce his tax
amount.

2. Deduction planning – there are

many deduction provided by a
taxation law. One should implement
and plan those deduction. The major
 area of the deduction is available
under sec.80C where one can claim a
deduction for life insurance, mutual
funds, home loan interest and many
more.

3. Investment in tax planning –

assesse can invest in policy for future
plans and save his money from tax

4. Year-end planning strategies – one

can reduce his tax liability for the next
year by prepaying those expenses
which will be imposed next year and
can make a strategy before starting
the new financial year.

Tax Planning Example

Tax planning is an arrangement to reduce
tax liabilities. How can an individual
reduce his tax liability by planning at the
beginning of the financial year? Let’s take
a look at some example
 1.Mr. W who is an individual of age 45
years, whose taxable income is
rs.500000 and except a premium of
medical insurance of rs.10,000 he has
invested no money in income details
and deduction his gross tax amount
will be rs. 16,224.
2.Mr Y who is an individual of the same
age as. Mr W and all the income
details are similar to. Mr W but. Mr Y
invest his money in schemes offered
by the government under Sec.80C his
gross tax amount will be Rs 0
Tax Planning regarding Residentail
Status
Non- resident
1.A non-resident person in India is one who
has not completed the basic condition of
being a resident of India. A Hindu
Undivided family can also be non-resident
of India as an individual. If a firm or an
association of persons who are said to be
 resident in India, control or manage the
affairs wholly outside India will also be
non-resident.
2.Foreign income is not taxable in the hands
of non-resident in India.
3.Under Sec9 certain income is deemed to
arise in India even if it may arise outside
India.
4. Tax paid on behalf of the non-
resident/foreign companies in respect of
other income shall not be taxable under
Sec.10.
Need of Tax Planning
Tax planning is essential to point in a person’s
life. As the Government imposed high tax
rates so, to reduce that tax liability there is a
requirement of tax planning. There are many
schemes and offer provided in taxation law.
One has to choose the right scheme where he
can invest and avail the benefits are provided
to assesses like-
 Deduction under section 80C
  Deduction for HRA
 Investment in senior citizen
scheme
 Investment in mutual funds
 Investment in national saving
schemes
 Any many miscellaneous
schemes.

Tax Planning benefits

Tax Planning should be done to reduce tax

liability but what are other benefits of tax
planning. Let’s discuss here a very important
factor of tax planning and every individual or
company focus on this factor to save capital
from taxes and use it for the more beneficial
purpose like invest in some beneficial scheme.
Better to save the money at the beginning of
the year by planning better to spend it in
paying tax. One should avail the offers as
much as he can so he can spend that money
in any other way or save for his future plans.

Tax Planning for New Business

Any person or company can do their financial
planning to reduce their tax liability. An
individual can plan his tax liability by
contribution in government scheme,
deduction, subscription or any other
exemption provided by law. But how can be
tax planning is done with reference to setting
up of new business, financial management
decision, employee remuneration, etc. we will
discuss it here.
Setting up a new business
To set up a new business one has to decide
the following matters.
1. Free trade zone under sec.10A
provided a deduction to newly
established undertaking for which some
condition should be satisfied like
 undertaking must begin manufacture
production in free trade zone the
industrial undertaking should not be
formed by the splitting up or
reconstruction of a business already in
existence except those undertaking which
are referred under sec.33B.
2.Hundred percent export-oriented
undertaking under sec.10B.
3. Deduction under sec 80IB in respect
of profits and gains from certain industrial
undertaking like- business of an industrial
undertaking, operation of a ship, hotels,
industrial research, production of mineral
oils, developing and building housing
project, convention theatre, etc.
Tax Planning With Reference To
Financial Management decision
Many tax provision affect financial
management decision some provisions are
discussed here-
1. Capital Structure – capital structure
is the amount of debt or equity to
fund the operation and finance assets
of the company. By capital structure
shareholder is known as debt-to-
equity or debt-to-capital ratio. Under
taxation law, dividend on share is not
deductible, while the interest paid on
interest borrowed capital is allowed
as deduction.
2. Dividend policy – A dividend is part
of a profit which is distributed among
the shareholder of the company.
Dividend from an Indian company is
not taxable under law dividend from a
foreign company is taxable in the
hand
Shareholder. As per sec.194deductionshall be
made in the case of a shareholder if
The dividend is paid by an account payee
cheque
The aggregate amount of such dividend
distribution of that financial year does not
exceed two thousand five hundred rupees
3 .Inter- Corporate Dividends –
Deduction on the inter- corporate
dividend is given under sec 85A where the
total income of an assessee being a
company include any income by way of
dividend received by it form an Indian
company or a company within India shall
be entitled to a deduction from the
income tax.
4 .Bonus Share- Tax consideration for
equity shareholder and preference
shareholder are as follow
For equity shareholder, at the time of the
issue of bonus share, there is no tax
liability of the company as well as
shareholder. But at the time of liquidation
 of the company bonus share in the hands
of the company will be treated as
dividend distribution and company has to
pay dividend tax but that amount will be
exempted in the hands of shareholder.
In the case of preference shareholder, if
the bonus share issued before June 1,
1997, then there will be no tax liability for
the company and for shareholder it will
be deemed as dividend and if bonus share
issued after June1, 1997 then will be no tax
liability on shareholder and for the
company it will be chargeable as dividend
tax. At the time of redemption or
liquidation there will be no tax liability on
the company and shareholder too.

Tax Planning and Managerial Decision

Tax planning affects managerial decision too like-
 Make or Buy- make or buy decision is
based on the costing and non-costing
consideration. A consideration which
affects the decision is-
 1.Utilization of capacity
2.Inadequacy of funds
3.Latest technology
4.The variable cost of
manufacturing
5.Dependence upon supplier
6.Labour problem other factors
 Own or lease – if assesse obtains assets
on lease then he can claim the lease
rental as a deduction, but if he purchase
that assets than he claim depreciation on
those assets under sec 32.
 Purchase by Instalment v. Hire – if assets
purchased by instalment then the
deduction can be claimed under sec 32. If
assets are hired then the deduction can
be claimed on hire charges.
 Renewal or Renovation – before claiming
a deduction for renewal, renovation,
repairs or replace, one should keep in
mind whether the deduction for these
consideration is available under sec 30,
31, or 37. If the deduction for revenue
 expenditure is allowed then tax liability
can be reduce.
Tax Planning Strategies
Tax planning strategies are a plan to reduce
tax liability by availing the advantages of
schemes and program offered by the
government to an individual or an
organization. The motive of tax planning
strategy is to use the schemes for the
reduction of tax liability in the right direction
and in a lawful manner. As we have program
which are offered by the government.
 Deduction under sec 80C- section covers a
wide area for a tax deduction which offers
a number of schemes and save it from
tax.
 Deduction for HRA – house rent
allowance given under sec 10(13A) where
employees are exempted from paying tax
who lives in a rented room/apartment.
 Deduction on education loan – under sec
80E one can save his tax , as per this sec
deduction is allowed on the loan taken by
 an assess for his higher education or for
the higher education of his relative.

 Rebate for home loan – one can save

his tax on home loan principal repayment.
Under sec80C assesse can claim for
principle repayment and sec 24bfor home
loan interest.

 Planning for long term capital gain –

under long term capital gain one can
claim for deduction on the sale of long
term capital assets mean by for 3 years or
more

 Donation exemptions – donation

exemption can be claimed under sec80G
if the assesse has donated any amount for
NGO or for any political party.
Tax Planning Salary
Before planning tax liabilities to reduce tax
limit one should know how much salary is
taxable and what allowance are not taxable.
Just take a look.
 Basic salary – A basic salary is the fixed
amount that is paid to the employee
before adding any bonus or surplice
charges or reduction in any investment.
 House rent allowance – house rent
allowance is that amount which paid to
those employees who live in a rented
house or apartment for the employment
purpose. House rent allowance is not
taxable under income tax but if the
employee who gets house rent allowance
and live in his own house then that
amount will be taxable.
 Leave Travel Allowance – leave travel
allowances are exempted under income
tax where it is provided that allowance
will be claimed on short distance trips
 within India. Employees directly cannot
claim this exemption.
 Bonus – bonus is the additional amount
given by the employer to his employees.
Bonus can be given on some occasion or
can be based on the performance of
employee whatever it is will be
completely taxable.
 Provident Fund – provident funds is a
scheme started for the employees so they
can contribute to this scheme and save
money for their future. 12% of the basic
salary contributed to the pension and
provident fund of the employee.
 Standard deduction – standard
deduction is that amount which is not
taxable and can reduce the tax liability.
The employee can claim 50000 as a
standard deduction from his taxable
income.
 Professional Tax – this is the tax
imposed by the state government on a
person. The maximum limit which the
 state government can levy on a person is
rs. 2500 which is not taxable under
income tax.
One can take help from these allowance
and schemes to reduce his tax liability by
reducing his salary. There will be a
minimum tax on less salary.

Tax Planning for Salaried Employees

As we studied above, tax planning is a financial
arrangement plan by a taxpayer to get the
maximum benefit of their capital. Tax planning
should not be confused with complete avoidance
of tax in any of the circumstances one cannot
avoid his tax liability completely. Tax planning is a
way by which an individual can minimize his tax
liability and invest his capital for more fruitful
result.
For a salaried individual the tax planning approach
should be in a proper manner so one can take
advantage of Government schemes. For taking
advantage firstly one should invest in saving
scheme from his current year income to reduce
tax liability.
And another is to plan some special measures to
invest money in the pre-retirement stage for a
post-retirement period so there will be an
assurance of proper and adequate flow of capital
and one can enjoy his retirement period.

Tax planning in Income Tax

To decide whether one should invest his salary in
a more suitable option for that person. To invest
income in a particular income an assess should
have enough knowledge about schemes and
investment under those scheme. As we have sub-
categorized the option for tax planning available
to the assesse
Investment in government schemes
There are many tax provision under which
government provide benefit to assesses so
different assesses can choose different option as
per their suitability like- some invest in life
insurance corporation, some under pension fund
according to their suitability. Now we will discuss
government scheme one by one- In all the
government scheme sec 80C is the most tax-
saving under which people claim their taxes.
Before the assessment year 2006-07 deduction
under sec.80C was provide under sec.88.88B
which has been now replaced. There are some
scheme under sec.80 where deduction allowed
out of total income.
Tax-saving scheme – there are some tax
saving scheme where contribution in those
scheme will not be covered under taxable
income and entitled to deduction under
sec80C these scheme are
 Life insurance policy
 Contribution to provident funds
 Investment in national saving certificate
 Amount invested in annuity plans
 The amount deposited in pension funds
 Tuition fee paid
 Contribution in life insurance corporation
or mutual funds
Tax Planning Capital Gains
Capital gain is a profit arises from the sale of
capital assets. Capital gain can be a long-term
capital gain and short term capital gain. The
capital gain exemption is provide under sec54
where capital gains tax rates divide by 0% ,
15% , 20% in the 2019 amendment by the
2019 by the finance act under sec54 where
exemption provided for house property it is
included that where the amount of capital
gain does not exceed 2 core rupees then
assesse by his choice can purchase or
construed two residential house in India.
To avail this benefit one need to fulfil the
following conditions provident under the act
1.The time period of purchasing of new
property shall be either before 1 year of
selling the property or 2 years after selling
that property.
2.That capital gain should be invested in the
construction of property which is
 necessarily completed within the 3 years
selling.
Tax Planning Calculator
The tax planning calculator is an online tax
calculating device so one can calculate his gross
total income and the taxable amount and save his
tax with the help of that calculator. One can access
that calculator from anywhere, anytime. Generally
four steps include in tax saving calculator
1. In the first step one has to give his basic details
about his age and financial year for which he
want to calculate his tax
2. Further he has to provide his income details like
how much income is taxable interest on the
home loan etc.
3. In next step details in regards to deduction
under different schemes shall be provided.
4. After calculating all the above details the tax
saving calculating calculates the income that
how much tax is payable.
Let’s understand this with an example
An individual let’s say, mr s the age of 35 years has
to calculate his income of the financial year 2019-
20.
Particular –
His taxable income is rs.500000
Interest paid on a home loan is 12%
Rental income received – rs. 10,000
Income from interest rs. 50,000
Interest paid on loan – 8%
Deduction
Basic deduction- rs.30,000
Medical insurance rs 20,000
Interest from deposits- 8%
Donations to charity – rs3000
After calculating the above details the tax payable
by Mr.S is rs. 13,832 if he want made some change
in income details let’s say income from interest is
rs. 10,000 then no amount will be taxable.
Schemes Under Tax Planning
To save the capital and minimize the tax liability
government provides numbers of the scheme
under income tax so one can make the right
decision to invest his money with a low cost
investment and maximum benefit. There are some
major schemes where an individual can invest his
money for availing its maximum benefit.
 Life Insurance Policy –
One can claim the exemption for insurance
policy under section 80C of the act. The
interest rate of this plan is 0-6% no limit of
minimum and maximum investment is fixed.
Under this policy one has to pay the premium
on his own life or spouse life or on children
lives or any member in the case of HUF.
 Health Insurance –
Under section 80D of the act one can claims
an exemption for health insurance where the
assess as an individual does not pay insurance
on the health of the assess or his family
members or his parents on account of
preventive health check-up to the central
government which exceeds the sum of twenty
five thousand rupees. And in the case of
medical expenditure incurred on the health of
assess or his family member or his parent the
amount does not exceed fifty thousand
rupees.
 Public Provident Fund
One can invest his income under the public
provident fund and can claim an exemption
 under sec 80C of the act. The interest rate
under PPF is 8% per annum, where minimum
investment is rs.500 and the maximum
investment is rs. 1.5 lakh.
 Equity Linked Saving Schemes(ELSS)
The major plans for saving tax liability are
mentioned under sec 80C. ELSS is one of the
two equity mutual funds where its maximum
investment limit is rs. 1.5 lakh per annum. One
has to invest his capital for at least 3 years.
Another equity mutual funds scheme is a unit
linked Insurance plan.
 National Pension Schemes
The national pension scheme is an employer
contribution towards employee NPS from his basic
salary which is up to 10% and deductible from tax
liability. No maximum limit is fixed for investment
and it is a low cost investment scheme

 Senior Citizen Saving Schemes

Senior citizen saving schemes is for those
individuals who are of age 60 or above and in
the case of age between 55-60 a person
 should be retired under superannuation or
VRS rules. The interest rate of the schemes is
8.7% and the minimum investment amount is
rs.1000 and the maximum limit is rs.15 lakh.
The person who is a non-resident Indian or
person of these senior citizen.
 National Saving Certificates
National Saving certificate is an investment
saving scheme offered by the government to
every person who wants to secure his money.
Assesse can invest by his children name or any
members of the Hindu undivided family. The
interest rate is 8 % and this is low risk
investment scheme up to rs.1.5 lakh which
can be invested for a tax deduction under
sec80C

Tax Planning for Partnership Firm

A partnership firm is a business consists of two or
more people who have a common goal and invest
their money and assets for the accomplishment of
that goal and share equal profit and liabilities.
Tax planning for a partnership firm is the most
important issue for each and every partner. The
primary focus to avoid tax levied by the
government is to make proper tax planning. To
maintain the growth of the business firm owners
has to do arrangement to avail the benefits.
In a partnership firm income tax is levied on all
partners so all the records and document of their
income attached with partnership tax return form.
Profit arises from sales of any assets that are
taxable too.
There are some exemptions or benefits provided
in regard to the partnership firm these are
 Any payment of salary bonus, commission or
remuneration to any partner who is not a
working partner.
 Any payment of remuneration to any partner
who is a working partner but not authorized
by the terms of partnership firm
Zero Tax Planning
Zero tax planning is the way to reduce tax
liabilities as much that the payable amount of tax
will be zero. As we have studied all the provision of
the taxation law which provides deduction from
tax liability. By planning and investment in the
right schemes and program one can plan zero tax.
There are many schemes like one can invest his
money in mutual funds or claim deduction under
sec.80C up to 1.5lakh repees and many more.

The Income Tax Equation

For the understanding of any layman the process
of computation in income and tax liability can be
outlined in following five steps. This project also
designed to follow the same.
 Calculate the gross total income deriving from
all resources.
 Subtract all the deduction and exemption
available
 Applying the tax rates on the taxable income.
 Ascertain the tax liability

Chargeability of Income Tax

As per Income Tax Act 1961 income tax is charged
for any assessment year at prevailing rates in
respect of the total income of the previous year of
every person. Previous year means the financial
year immediately preceding the assessment year.
Basic Knowledge of income tax
According to income tax act 1961 every person
who is an assessee and whose total income exceed
the maximum exemption limit shall be chargeable
to the income tax act the rate or rates prescribed
in the finance act such income shall be paid on the
total income of previous year in the relevant
assessment year.
 Every person in respect of whom any
proceeding under the income tax act has been
taken for the assessment of his income or of
the income of any other person in respect of
which he is assessable or of the loss sustained
by him or by such other person in respect of
which he is assessable or of the loss sustained
by him or by such other person or of the
amount of refund due to him or to such other
person
 Every person who is deemed to be an assess
under any provision of the income tax act

Tax Planning Tools

Following are the tax planning tools that
simultaneously help the assess maximum their
wealth too
Here are some guidelines to help you wade
through the various option and ensure the
following.
1. Tax is saved and that you claim the full benefit
of your section 80C benefits
2. Product are chosen based on their long term
merit and not like fire fighting options
undertaken just to reach that rs1 lakh
investment mark product are chosen in such a
manner that multiple life goals can be fulfilled
and that they are in line with your future goals
and expectations.
3. Product that you choose help you optimise
return while you save tax in the immediate
future.

Why should you do Tax Planning

There are some fundamental objective of tax
planning. Tax planning diminishes tax liability by
saving the assess the maximum amount of tax by
arranging their financial operation according to tax
decision. It also conforms to the provision under
taxation laws, thereby minimizing any litigation.
One of the biggest benefits of tax planning is that
the return can be directed to investment. It is the
most productive way to make smart investment
while fully utilizing the resources available due to
tax benefits. Investing tax money generates white
money to flow through the economy development
tax planning hence contributes to the economic
stability of the individual as well as the country.

Income Head-wise Tax Planning

Suggestion
Salaries Head: following propositions should be
borne in mind
1. It should be ensured that under the terms of
employment dearness allowance and
dearness pay from part of basic salary. This
will minimize the tax incidence on house rent
 allowance, gratuity and commuted pension.
Likewise, incidence of tax on employer
contribution to recognized provident fund will
be lesser if dearness allowance forms a part of
basic salary.
2. The supreme court has held in Gestetner
Dupliccators ltd vs, CIT that commission
payable as per the terms of contract of
employment at a fixed percentage of turnover
achieved by an employee falls within the
expression salary as defined in rules of part a
of the fourth schedule consequently. Tax
incidence on house rent allowance,
entertainment allowance, gratuity and
commuted pension will be lesser if
commission is paid at a fixed percentage of
turnover achieved by the employee.
3. An uncommitted pension is always taxable
employees should get their pension
commuted. Commuted pension is fully
exempt from tax in the case of Government
employees and partly exempt from tax in the
case of government employees and partly
exempt from tax in the case of non-
government employees who can claim relief
under section 89.
4. An employee being the member of recognized
provident fund who resigns before 5 years of
continuous service should ensure that he joins
the firm which maintains a recognized fund
for the simple reason that the accumulated
balance of the provident fund with the former
employer will be exempt from tax provident
the same is transferred to the new employer
who also maintains a recognized provident
fund.
5. Since employers contribution towards
recognized provident fund is exempt from tax
up to 12 percent of salary employer may give
extra benefit to their employees by raising
their contribution to 12 percent of salary
without increasing any tax liability.
6. While medical allowance payable in cash is
taxable, provision of ordinary medical facilities
is no taxable if some conditions are satisfied.
Therefore, employees should go in for free
medical facilities instead of fixed medical
allowance.
7. Since the incidence of tax on retirement
benefits like gratuity, commuted pension,
accumulated unrecognized provident fund is
lower if they are paid in the beginning of the
 financial year, employer and employees
should mutually.

Income Tax Refund

Income tax refund arises in case of a mismatch
between the tax amount paid and the actual payable
amount. If the amount paid is higher than the actual
amount payable a refund is initiated the form 30 is
used for the same purpose.
Under the income tax and other direct tax laws refunds
arises in those cases where the amount of tax paid by a
person is greater than the amount on which he is
properly chargeable this is noted under sec 237 to 245
of the income tax act 1961.

Who is eligible for Income Tax Refund

There are many cases wherein you will be eligible for a
refund. Some of them are
 If the tax you have paid in advance on the
basis of self-assessment is more than the tax
payable on the basis of regular assessment,
  If your TDS salary, interest on securities or
debentures, dividends etc. is higher than the
tax payable on the basis of regular
assessment.
 If the tax charged based on regular
assessment gets reduce because an error in
the assessment process was resolved.
 The same income is taxed in a foreign country
with which the government of India has an
agreement to avoid double taxation and in
India as well.
 If you have investments which offer tax
benefits and deductions that you have not
declared.
 If you find after considering the taxes you
have paid and the deductions you are allowed
that the tax paid amount is in the negative.

Tax Deduction
What is Tax Deduction?
A tax deduction is an item you can subtract from
your taxable income to lower the amount of taxes
you own. You can choose the standard deduction a
single deduction at a fixed amount or itemize
deduction on schedule A of your income tax
return.
If the value of your itemized expenses is greater
than the standard deduction for your filing status
it makes sense to itemize. Allowable itemized
deduction include mortgage interest, charitable
gifts, unreimbursed medical expenses, and state
and local taxes.
KEY TAKEWAYS
 Tax deduction are subtracted from your
taxable income thereby lowering the amount
of tax you you owe.
 You can choose the standard deduction or
itemize your deduction on Schedule A of form
1040 or 1040 SR.
 The tax cuts and Jobs act nearly doubled the
standard deduction and improved several tax
deduction.
 The TCJA also eliminated or limited many
itemized deduction including the mortgage
interest deduction.
  If you itemize your deduction be sure to keep
receipt to substantiate your expenses.

Understanding Tax Deduction

Individuals can takes the standard deduction
which nearly doubled under the tax cuts and job
act or itemize their deduction. Here a rundown of
the standard deduction amount for the 2021 and
2022 tax years.

Tax Administration: Income Tax

Authorities
Income tax is direct tax levied by the central Govt.
of India. There is a large chain of income tax
authorities for assessment, collection and recovery
of tax. I discussion about the appointment,
powers, functions and jurisdiction of various
income tax authorities is given as under –

Income Tax Authorites

 The income tax act has constituted the following
classes of income tax authorities to ensure
effective administration and discharge of
execution and administrative functions-
1. The Central board of direct taxes
2. Directors general of income tax or chief
commissioners of income tax
3. Directors of income tax or commissioners of
income tax or commissioners income tax.
4. Additional directors of income tax or
additional commissioners of income tax or
additional commissioners of income tax
5. Joint directores of income tax or joint
commissioners of income tax.
6. Deputy directors of income tax or deputy
commissioners of income tax or deputy
commissioners or income tax.
7. Assistant directors of income tax or assistant
commissioners of income tax
8. Income tax officers
9. Tax recovery officers
10. Inspectors of income tax

Appointment of income tax authorities

1. The central Government may appoint such
persons as it thinks fit to be income tax authorities
2. The central Government may authorise the board
or a director general a chief commissioner or a
director or a commissioner to appoint income tax
authorities below the rank of an assistant
commissioner or deputy commissioner.
3. An income tax authority authorised the board may
appoint such executive or ministerial staff as may
be necessary to assist it in the execution of its
function

Essentials of tax planning

 Up to date knowledge of tax laws and
awareness of judgment made through various
decisions of the courts.
 The disclosure of all material information and
furnishing the same to the IT department.
 Tax planning should not just comply legal
provision as stated but should be within the
framework of law.
 A planning must be capable of attainment of
business objectives and be amenable to its
possible future changes.
Conclusion
As we have discussed many tax incentives
under the provision of laws which focus and
help in the reduction of tax liabilities. An
individual or a corporate who are taxable
under the present tax regime can avail the
benefits that arise out of these incentives. The
income tax regime in India has evolved over
time and has made it easier to plan and save
their capital accordingly. It is suggested that
one should avail of these benefits within the
framework of the law.
Bibliography
Books
 Dr. vinod k.Singhania 2018 , students guide to
income tax

Website
 http://Incometaxindia.gov.in
 www.taxguru.in
 www.google.com